Ask the Experts: Andrea Leithner Stauffer on student loan debt

December 01, 2011

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Q: How can students and their families avoid accumulating student-loan debt they can't repay?

A: I think the key here is for students to make good decisions early on about how much loan debt they can reasonably repay, and the same idea goes for their parents who may be borrowing for their child's education. When students look at what school they want to attend, some know they want a certain major, and some have a specific career in mind. However, it's not wise to assume that you will automatically get a high-paying job right out of college. The reality is, no one is guaranteed a job. But whether you have one or not, you'll have to repay your student loans, so you should be careful with your borrowing.

Financial aid offices advise students to borrow only what they need. Don't just borrow everything you happen to be awarded in loans. If you don't absolutely need it for your college expenses, don't borrow it. Also, be sure that you read all loan documents that you sign, particularly information regarding the interest rate and repayment terms, as this will help you to understand exactly what you are borrowing.

Q: How might a college financial aid office help?

A: We can help students and parents understand the different types of loans available, how much they are eligible to borrow and how much these loans will affect their income and living expenses after they graduate.

The college search process is not only about determining the right fit for a student at a school, but also about the right financial fit for a family. Of course parents always want to do anything they can for their children, especially where education is concerned, but financial reality must come into the picture too. Students and parents should ask themselves, "How much is it really going to cost for me to go there, can we handle the expense for four years, and can we borrow amounts that work for us?"

Q: Are some types of loans less risky than others?

A: Federal loans are the first loans students should consider, as they typically have lower interest rates and more favorable repayment terms than the private, non-federal loans. The Federal Direct Loan program is the main loan program students apply for when they apply for financial aid. In the subsidized version, which is based on financial need, the federal government subsidizes the interest while the student is enrolled. In the unsubsidized version, which is not need-based, the student is charged interest until the loan is repaid, and the interest can be capitalized and added to the principal.

The Parent Loan for Undergraduate Students (PLUS) can be a good possibility for parents. It is a creditworthy federal loan that a parent may borrow with a lower interest rate than many of the private loans. The parent is actually the borrower for PLUS, but I know that some parents make informal repayment arrangements with their students.

Some schools also have low-interest institutional loans that they are able to offer to students, again with favorable repayment terms. The programs and amounts can vary — check with your financial aid office for details.

After the federal loans, there are the private, alternative loans. Private loans typically have much higher interest rates. These are loans that years ago used to have near credit-card-level interest rates in the double digits. Rates have come down some now, but realistically, it is hard to know how long this will be the case. There are still a number of private lenders, but the number has decreased a lot in the past few years.

Q: What non-loan forms of financial aid are available, and how can families get them?

A: Students first should find out from their financial aid offices what they need to do to apply for all forms of financial aid — federal, state and institutional scholarships, grants, loans and work-study. Complete all required applications and submit all forms so that you know you have applied for everything possible. Most financial aid deadlines will be in the fall or winter of a student's senior year of high school.

Be sure to apply for outside scholarships at sites such as www.fastweb.com. Many of the deadlines are in the fall and winter timeframe as well, so do your research early.

Colleges often have payment plans that allow families to spread out payments over a series of months and help them avoid borrowing.

Finally, be sure to apply for everything you possibly can from all federal, state and institutional sources. Make sure you find out whether you actually have to apply for merit scholarships at the colleges you are considering or if all applicants are automatically considered. Do all your homework and contact the financial aid office of the institutions to which you are applying if you have questions. We are here to help you.

Interviewed by Molly O'Brien-Foelsch

New editions of "Ask the Experts" will appear on the Bucknell website on most Thursdays during the fall and spring semesters. If you have ideas for future topics or are a faculty or staff member who would like to participate, contact Molly O'Brien-Foelsch.

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